Deutsche Bank warned of expected further writedowns as continuing turmoil in financial markets led Germany’s largest bank to admit that profit forecasts for this year could be at risk.

Leveraged finance and structured credit markets were among the business areas principally affected, Deutsche said as it acknowledged “considerably lower volumes of business activity”.

The gloomier outlook in Deutsche’s annual report pushed its shares lower on Wednesday and marks a change of tone from last month, when Josef Ackermann, chief executive, reaffirmed the bank’s goal of achieving a pre-tax profit of €8.4bn ($13.2bn) in 2008.

Many analysts had already assumed that the target would not be achieved.

In its report, Deutsche also detailed billions of euros of exposure in other areas of business where risks have spiralled.

It said it was giving “added transparency” on its links to US mortgage business and monoline insurers as well as detail on its off-balance sheet exposures.

It had been among the big global banks seen to have limited its exposure to credit market turmoil during 2007, with the bank saying it took “early defensive positioning” in subprime investments.

Deutsche said it had more than €17bn of exposure to commercial property – of which half was in the US – at the end of 2007. It also had €36bn of leveraged finance exposure, on which it made net writedowns of about €760m.

“Challenging market conditions for leveraged financing activities have continued in the early part of 2008 and it is likely that our leveraged lending commitments will require further writedowns if market conditions fail to improve.”

It also said it had €1.2bn of exposure to US subprime residential mortgages in its trading of collateralised debt obligations; €3bn, net of hedges, of other US mortgage business exposure; €1.1bn of net counterparty exposure to monoline insurers linked to residential mortgages; and €1.2bn of monoline exposure from the mark-to-market value of other insured assets.

Compensating for writedowns and reduced business activities because of tough markets “may not be feasible” through better performance in other lines of business, Deutsche said, especially if economic growth slowed more than expected.

It added: “These circumstances would likely adversely affect our ability to achieve our pre-tax profitability objective.”

Deutsche is due to report its first-quarter results at the end of April.

Kian Abouhossein, European banks analyst at JP Morgan, said: ”The figures are nothing shocking but clearly more material than we expected to be the case.”

Deutsche had more exposure than expected to US residential and commercial property, according to Mr Abouhossein. Some €4.5bn of writedowns this year had been forecast but the mark-to-market impact was now “likely to increase by a few billions [of euros]”, he wrote in a note.

The bank’s assets rose to €2,000bn at the end of the year while total equity rose €5bn to €38.5bn. Mr Ackermann’s earnings last year rose from €13.2m to €14m, including €12.7m of performance related pay and long-term incentives.

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